Anchoring and Adjustment is a cognitive bias that influences decision-making and judgment. It occurs when individuals rely too heavily on the initial information they receive, known as the “anchor,” and subsequently make adjustments from that starting point, often insufficiently correcting for new or additional information.
Two Stages Where These Process Typically Unfolds
Anchoring: This involves the initial exposure to a piece of information, which then serves as a reference point or anchor for subsequent judgments or decisions. The anchor can be a random number, a suggested price, or any piece of information that might influence perception.
Adjustment: After being exposed to the anchor, individuals make adjustments based on new information or considerations. However, the adjustments are often insufficient, and people tend to remain too close to the original anchor.
Anchoring and Adjustment can be observed in various aspects of decision-making, including negotiations, pricing, and problem-solving.
Examples to Illustrate the Concept
Negotiations: Imagine two people negotiating the price of a used car. The seller suggests a price that serves as the anchor. The buyer, influenced by this initial figure, may then make adjustments from that point. If the seller starts with a high anchor, the final negotiated price is likely to be higher than if the anchor had been lower.
Pricing: In retail settings, the first price presented for a product can act as an anchor. Even if the initial price is arbitrary, customers may use it as a reference point when evaluating the perceived value of the product. Retailers often use sales tactics that involve presenting a higher initial price and then offering a discount, taking advantage of the anchoring effect.
Problem-solving: When faced with estimation tasks, individuals often anchor on the first piece of information they encounter. For example, if asked whether the population of a city is above or below a certain number, the initial suggested figure becomes the anchor, influencing subsequent judgments.
Understanding anchoring and adjustment is crucial for decision-makers, as it highlights the need to be aware of the potential influence of initial information on subsequent judgments. Being mindful of this bias allows individuals to make more rational and informed decisions by consciously adjusting away from initial anchors based on relevant and unbiased information.
Anchoring and Adjustment is a cognitive bias where people rely too heavily on the initial information they receive (the anchor) when making subsequent judgments or decisions. The adjustments made from this anchor are often insufficient, leading to biased and suboptimal decision-making.